Hewlett-Packard, and its investors, has CEO Mark Hurd to thank for those good prospects. Hurd’s doing at HP exactly what he did as boss of NCR: cutting costs and executing smart business strategy to turn the company around.
The Electronic Data Systems acquisition specifically is something Cramer thinks could be a real game changer for Hewlett-Packard. Hurd expects to lay off 12,000 EDS workers by the end of 2009, which should free up a good amount of cash. And EDS’s outsourcing and information-technology business will offer HP growth in new markets.
Hewlett-Packard’s already number one in PCs and printers, and there isn’t much in the way of competition these days. Dell and Lexmark are faltering to say the least, giving HP the chance to take share, and there’s a good chance the company could snatch clients away from IBM and EMC.
So you can see why Hurd would feel confident enough to endorse his firm’s 2009 earnings, something few other CEOs are willing to do. Cramer was a bit concerned about EDS’s exposure to General Motors and GMAC – more than a billion dollar’s worth – but Washington’s recent intervention seemed to alleviate those fears.
Now the Mad Money host is focused on the 13.5% long-term growth rate and the tiny 8.7 price-to-earnings ratio. HP’s historic five-year valuation is about 17. If that multiple gets to just 11, then investors will see that aforementioned 26% gain. And HP’s strength makes it a more likely buy for big money managers, more so than even Microsoft or Intel, Cramer said, so that upside is a real possibility.
Check back all week as Cramer highlights his top five Dow Jones Industrial stocks.
Jim's charitable trust owns Hewlett-Packard.
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